Largest Natural Gas Suppliers Announce 2024 Production Cuts in Response to Recent Near Record Lows

Energy News Update: February 26th, 2024 Largest Natural Gas Suppliers Announce 2024 Production Cuts in Response to Recent Near Record

Energy News Update: February 26th, 2024

Largest Natural Gas Suppliers Announce 2024 Production Cuts in Response to Recent Near Record Lows

Natural Gasis the largest source of power for generation of Electricity; therefore, their pricing is highly correlated, which is why we focus on Natural Gas in our reports.

In our Feb 19th Energy Update we pointed out after our Feb 5th Energy Update all major weather models unexpectedly extended their forecast of milder than normal weather through the end of February, which was expected to increase the already higher than normal total supplies on Feb 5th by more than 100 Bcf by Mar 8th. Total Natural Gas supplies were now projected to be approximately 2,260 Bcf by Mar 8th, which would be 34% above the 5-year moving average.  

The unexpected increase of supplies in storage pushed prices below long-term support near $2 per MMBtu:

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But in our Feb 19th Energy Update we pointed out, based on what has happened in the past, prices are not expected to remain near today’s very low prices for an extended period.  

We came to this conclusion by reviewing data from the Energy Information Administration’s website, which revealed there were 2 similar instances in 2012 and 2016, when Natural Gas’s total supplies were higher than where they are estimated to be this year on March 8th, and both cases Natural Gas prices were much higher by the end of the year.

Energy News
Energy News

In 2012 and 2016, similar to this year, we experienced warmer than normal winters resulting in supplies reaching record levels, but by the end of the year prices more than doubled! 

Why? Simply because prices were unsustainably low.

In our Feb 19th Energy Update we explained prices are unsustainably low when they drop below the cost of production, and it was important to understand that the longer prices stayed low the higher they will go later! This was a byproduct of the weaker companies being forced out of business thereby decreasing competition, and the surviving companies were highly motivated to increase prices to make up for lost profits accrued while prices were low.

Are Natural Gas producers planning on cutting production in response to today’s unsustainably low prices?

Yes, they are!

Last week, Chesapeake Energy announced it plans to reduce their production of Natural Gas in 2024 by roughly 30% due to the recent plunge in prices to a 3-1/2-year low. This is significant given in the near future Chesapeake is expected to be the largest producer of Natural Gas in the United States after its merger with Southwest Energy. This announcement comes in tandem with EQT, who is currently the nation’s largest Natural Gas producer, and Antero Resources and Comstock Resources, who are also major producers, announcing they plan on reducing their 2024 production estimates.  

The takeaway from these announcements is as we approach the lowest price since 2000, the conditions supporting a major bottom in Natural Gas are in place, and although prices could go slightly lower in the near term, the average price of Natural Gas will likely be significantly higher long-term.

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Therefore, if your present energy agreements expire in 2024 or 2025, we recommend taking advantage of this year’s recent plunge in prices, and reserve energy to be available when your present agreements expire.

We believe the average price will be higher long-term, and the upside risk is far greater than the downside potential of waiting hoping for slightly lower prices.

Not every client’s risk tolerance and hedging strategy are the same, but hopefully, today’s report will help put into perspective your risk/reward opportunities. We invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Energy Professionals
Senior Commodity Analyst

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